When to pay interns?

09 February 2018

Media outlets have reported that HM Revenue and Customs (HMRC) has initiated a crackdown on unpaid internships, including sending letters warning that “workers” must be paid the national minimum wage and setting up teams to tackle the problem.

The background to this HMRC initiative is the Taylor Review of Modern Working Practices. Among other recommendations, the Taylor Review advised that the Government should stamp out exploitative unpaid internships by improving the interpretation of the law and enforcement action taken by HMRC. The Government’s response, Good Work, published this week confirmed that it would be acting on this by introducing new guidance and by increasing targeted enforcement action.

Employers are legally obliged to pay all “workers” - which may include interns - the minimum wage (which term we are using here to include the national living wage). Distinguishing between workers and others can be tricky and depends upon a number of different factors but does not depend upon the name used. Calling someone an “unpaid intern”, an “intern” or a “volunteer” will not take them out of the scope of the minimum wage provisions if they are legally a worker.

To be a “worker” an individual must have entered into a contract to perform work or services personally for someone else. This means there must be a contract – an agreement of some sort (whether express or implied, written down or not) under which the worker is obliged to turn up and work.

“Work shadowing”, where the individual is purely observing and not performing work does not qualify for the minimum wage.

In order for there to be a contract, there must be “mutuality of obligation”, which means both the individual and the employer must have an obligation of some kind. The employer’s obligation is to provide work; the worker’s is to do it. Some interns will be genuinely free to come and go as they please - genuine volunteers, for instance - meaning they are not workers and are not entitled to the minimum wage.

Although genuine volunteers are very unlikely to be workers, there is also a special category of “voluntary worker” not entitled to the minimum wage. This only applies to those working for charities and voluntary organisations who are not paid (other than the reimbursement of expenses incurred) and do not receive any benefits in kind other than reasonable subsistence or accommodation. Giving more training than is necessary to enable the individual to perform the volunteering work may be considered a benefit in kind and could take the individual out of this exception.

There are further specific exemptions for school children and students. Workers of compulsory school age are not entitled to the minimum wage. Neither are students undertaking work experience placements of no more than one year as part of a UK-based higher or further education course of study.

Organisations that fail to pay the minimum wage to interns that are in fact workers may incur a penalty and the individuals could bring claims for back pay. More seriously, a body that deliberately fails to pay the minimum wage could be liable to a criminal penalty, although the Government admits that it has never yet prosecuted in respect of an unpaid internship.

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